FOMC – Economy less worse but what will they say on inflation?

While still finishing up almost .03 for the week ended Sunday, AAA said the average price of a gallon of unleaded gasoline fell Sunday for the first time since April 28th, a 53 day streak without a drop. At $2.69, it is up .76 since March 18th, the day the FOMC announced they were going to start buying US Treasuries and raised the size of its MBS and Agency purchases. Even with today’s selloff, the 19 commodity CRB index is up about 14% (vs a 15% gain in the S&P 500, thus the REAL RETURN in terms of commodities is virtually nil) from March 17th and the implied inflation rate in the 10 yr TIPS has risen to 1.84% from 1.22%. The 10 yr bond yield is up 70 bps from March 17th and the average 30 yr mortgage rate at 5.47% (from is up 30 bps in that time frame and 62 bps off its April low. We know the FOMC will talk about the economy getting less worse BUT will they repeat that they expect “inflation will remain subdued” ?

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